Ready for some numbers?
The WRS might achieve 7.2% average returns, but it must pay its promised pension benefits regardless. Thus, the published normal cost reflects only part of the cost of the pension plan. Additional cost comes from the guarantee that benefits will be paid, even if the plan's investments do not generate the predicted returns.
When the published normal cost of public pensions is risk-adjusted using standard financial economics to reflect the guaranteed nature of pension benefits, the normal cost of WRS increases from 11.6% of wages to 29.5% - more than two-and-a-half times greater.
Before the Walker reforms, most state employees in the WRS contributed only 0.2% of their wages toward the pension plan. Now that the reform bill has passed, most workers must contribute 5.8% of their wages, lowering the actual taxpayer cost to 23.7% (29.5 - 5.8) of wages. Put another way: to get the same guaranteed return associated with the WRS, a private-sector worker would need to invest 23.7% of his wages in a 401(k) each year.
The new 5.8% employee contribution has been widely reported as representing "half" of pension costs, but 5.8% is half of the improper normal cost estimate that is unadjusted for risk. In reality, most government employees in Wisconsin now pay about one-fifth of the cost of their retirement benefits, not half.
This is a step in the right direction, to be sure--but not a radical change.
What a bunch of manipulating cr*p....so workers now, besides receiving pathetic salaries, must also be blamed because of the unresponsibility of our financial "system"?
Investing is risky not because of the workers, it is risky because USA bankers have gone totally mad. They are the ones who should compensate for the excessive risk. Don't they get 20 million a year to be able to do that? About 400 times the pay of a normal Joe?
You are right: including the recession of the 30s, average stock market yearly return is about 7-8.5% (depending whether you consider 10-20-30 years periods). And that is what we should count on. It is not the public workers or the Unions job to reduce volatily. You are really pushing the envelope like crazy here.
Also: these are people who forfaited better salaries for a more stable and protected way of life. Read: they decided they could live with 50K a year provided thay could not be fired on the spot for "downsizing" or a boss' bad day. It is a decision we should be able to make in a free country right? These are the people who work for you on Chrsitmas day to operate a bus or subway, the people you entrust your children to in school.... but no, of course, these are not important jobs.